Section Objectives Compare and contrast sources of financing for start-up ventures. Describe the resources available to entrepreneurs to start a business.

Content Vocabulary Capital Debt Financing Equity Financing Bootstrapping Debt Capital Operating Capital Line of Credit Trade Credit Equity capital Angel Venture capital Venture capitalist

Foundations Capital – The buildings, equipment, tools, and other goods needed to produce a product or the money used to buy these items.

Entrepreneurial Resources One of the unique talents of entrepreneurs is finding the resources to launch a business. This requires understanding the differences between: short-term needs, those associated with activities not part of normal operations; and long-term capital needs, relating to preparation for future growth.

Forms of financing Debt Financing – take out a loan which must be repaid with interest. Sources of debt capital are FAR more numerous than equity capital. Equity Financing – exchange $$ for part ownership of your business (equity)

Start-Up Money The main sources for start-up money for entrepreneurs include: friends family others who believe in the entrepreneur These resources come in several forms, such as savings, credit cards, loans, and investments.

Bootstrapping Most entrepreneurs get their businesses started by bootstrapping. bootstrapping operating a business as frugally as possible and cutting all unnecessary expenses, accomplished by borrowing, leasing, and partnering to acquire resources

Sources of Debt Financing Sources of debt capital are far more numerous than sources of equity capital, but the entrepreneur must be certain the business can generate enough cash flow to repay the loan. debt capital money raised by taking out loans, which must be repaid with interest

Sources of Debt Financing Banks Trade credit Small business investment companies Sources of Debt Financing Minority enterprise development programs Commercial finance companies SBA loans 9

Sources of Debt Financing Banks were once the primary source of operating capital, but today they are much more conservative in their lending practices. operating capital money a business uses to support its operations in the short term

Sources of Debt Financing An ESTABLISHED business can usually get a line of credit from a bank, which it can borrow against. line of credit an arrangement whereby a lender agrees to lend up to a specific amount of money at a certain interest rate for a specific period of time

Sources of Debt Financing Some businesses may seek trade credit from other companies in their industry as a form of debt financing. trade credit credit one business grants to another business for the purchase of goods or services; a source of short-term financing provided by one business within another business’s industry or trade

Sources of Equity Financing an ownership in a business To obtain equity capital as a source of funding for a business, the owner must give equity to obtain the financing. equity capital cash raised for a business in exchange for an ownership stake in the business

Sources of Equity Financing Personal savings Friends and family State- sponsored venture capital funds Forms of Equity Financing Private investors Venture capitalists Partners 14

Sources of Equity Financing An angel often invests because of his or her belief in a business concept and the founding team. angel a private, nonprofessional investor, such as a friend, a relative, or a business associate, who funds start-up companies

Sources of Equity Financing An existing business can use venture capital financing to raise large amounts of money to achieve its goals. venture capital a source of equity financing for small businesses with exceptional growth potential and experienced senior management

Sources of Equity Financing Venture capitalists often provide managerial and technical expertise to small businesses. venture capitalists individual investors or investment firms that invest venture capital professionally

Shark Tank Requirements Each company must ask the Sharks for Equity Financing. Amount? At least $20,000 but less than $100,000 Ownership stake? Up to you! You will need to evaluate the value of your business.

Proposal Examples Total Value of Company (x) =Amount Requested / % of equity Asking for $40,000 in exchange for 20% equity in our business. X = $40,000/.20 X = $200,000 Asking for $65,000 in exchange for 40% equity in our business X = $65,000/.40 X = $162,500 Try this one – Asking for $85,000 for 35% equity in business $85,000/.35 = 242,857.14